Prediction markets have spoken. The Federal Reserve — an institution staffed by economists with decades of experience analyzing inflation, employment, and economic data — should probably just check in with people betting on the internet before making decisions. The traders have reached 52% certainty about a rate hike. That's better odds than a coin flip. Barely. These are the same people who thought FTX was a solid investment six months before it collapsed, but sure, let's treat their aggregate guess about monetary policy like divine revelation.
The hot jobs report triggered this surge in gambling confidence. Employers added workers. Wages went up. The prediction market geniuses looked at this information — the same information available to literally everyone with an internet connection — and decided to move their percentage from one arbitrary number to another arbitrary number. Revolutionary stuff. The Federal Reserve will now cancel all their meetings, fire their entire research staff, and simply monitor what percentage some guy named @CryptoTrader4200 is willing to bet on Polymarket.
The beauty of prediction markets is that they aggregate the wisdom of crowds. The horror of prediction markets is that they aggregate the wisdom of crowds. Same crowds who panic-sold in March 2020. Same crowds who bought Dogecoin because a car salesman tweeted about it. Same crowds who think they understand monetary policy because they watched three YouTube videos about inflation. But now they're 52% sure about something, so clearly Jerome Powell should pay attention.
The Fed has spent months insisting they're done hiking rates. They've given speeches. Published statements. Used every variation of "we're holding steady" that the English language permits. Then some retail traders lose money on their rate-cut bets and suddenly the narrative shifts to hike probabilities. The jobs report was hot. The prediction market moved. Causation and correlation became the same thing. Sophisticated analysis at work.
The real development here is that financial journalism now considers "people changed their bets" to be newsworthy. The Federal Reserve will do whatever the Federal Reserve was already going to do, and these prediction market percentages will move up and down until they're either right or wrong, at which point the traders will either claim genius or blame manipulation. The house always wins, and the house is definitely not the people setting their money on fire at 52% confidence intervals.
Photo by Maxim Hopman on Unsplash
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